– The Company Reaffirms Guidance for the
Full Fiscal Year on a Constant Currency Basis –
The Estée Lauder Companies Inc. (NYSE:EL) today reported net
sales for its second quarter ended December 31, 2014 of $3.04
billion, a 1% increase, compared with $3.02 billion in the
prior-year quarter. Net earnings for the quarter were $435.7
million, compared with $432.5 million last year and diluted net
earnings per common share increased 3% to $1.13, compared with
$1.09 in the prior year. For the quarter, the negative impact of
foreign currency translation on diluted net earnings per common
share was $.07. Excluding the impact of foreign currency
translation, net sales increased 5% and diluted net earnings per
common share increased 10%, which reflects a reduction in the
Company’s effective tax rate.
Fabrizio Freda, President and Chief Executive Officer, said,
“Our successful performance this quarter reflected solid global
demand for our brands, including a strong holiday season. Our
results further demonstrate our ability to grow despite currency
headwinds and softness in several countries. For the quarter, our
sales and profits came in higher than planned as we continued to
leverage our diverse growth engines and capitalized on high-growth
opportunities, which translated into excellent results in several
of our higher-margin brands and channels, while efficiently
managing costs. Key drivers of our performance were the United
Kingdom and emerging markets, our makeup and luxury brands, and
online, specialty-multi and freestanding store channels.
“We began the second half of our fiscal year by successfully
completing the acquisitions of Editions de Parfums Frédéric Malle
and GLAMGLOW. These brands, along with RODIN olio lusso and Le
Labo, which we purchased last quarter, complement our portfolio in
skin care and luxury fragrance and further strengthen our long-term
strategic growth plan.
“Our second half plans call for an acceleration of sales and
profit growth supported by a strong innovation pipeline and current
product successes, improving trends in our large heritage brands,
emerging markets and our high-growth channels and brands. With the
agility we have created, we will continue to strategically invest
in growth opportunities, even in the face of softness and
challenges in certain markets. With half of the year behind us, we
are reaffirming our full fiscal year constant currency net sales
growth estimate of 5% to 6% and earnings per share of 7% to 10%,
excluding the effect of the retailer orders accelerated into fiscal
2014 from the rollout of our Strategic Modernization
Initiative.”
Results by
Product Category
Three Months Ended December 31 (Unaudited; Dollars
in millions) Net Sales Percent Change
Operating
Income (Loss)
PercentChange
2014 2013
ReportedBasis
ConstantCurrency
2014 2013
ReportedBasis
Skin Care $ 1,274.4 $ 1,261.3 1 % 6 % $ 317.1 $ 338.0 (6)%
Makeup 1,176.2 1,129.1 4 9 253.4 248.3 2 Fragrance 439.7 477.8 (8 )
(4 ) 47.5 60.5 (21) Hair Care 137.1 135.1 1 5 16.2 7.7 100+ Other
17.1 15.3 12 16 (1.4 ) (1.7 ) 18 Subtotal 3,044.5 3,018.6 1 5 632.8
652.8 (3)
Adjustments associated withrestructuring
activities
— 0.1 — 3.5 Total $ 3,044.5 $ 3,018.7 1 % 5 % $ 632.8 $ 656.3 (4)%
In addition to net sales, the change in operating income in each
of the Company’s product categories was unfavorably impacted by the
strength of the U.S. dollar in relation to certain currencies.
Total operating income in constant currency increased 2%.
Skin Care
- Skin care net sales increased,
reflecting the recent launches of Advanced Night Repair Eye
Synchronized Complex II and Re-Nutriv Ultimate Diamond from Estée
Lauder, as well as the Clinique Smart custom-repair serum and the
Clinique Sonic System Purifying Cleansing Brush. Also contributing
to sales were recent product launches from the Company’s luxury
skin care brand, La Mer.
- The skin care category was up against a
difficult comparison with the prior-year period, which featured
significant launches of reformulated iconic products from certain
of the Company’s heritage brands, including Advanced Night Repair
products from Estée Lauder and Dramatically Different Moisturizing
Lotion+ from Clinique.
- Operating income decreased, primarily
reflecting lower sales from certain heritage brands.
Makeup
- Higher makeup sales primarily reflected
strong growth from the Company’s makeup artist brands and from
recent launches, such as Pure Color Envy sculpting lipstick and
Perfectionist makeup from Estée Lauder.
- Sales from makeup artist brands
benefited from new product offerings, as well as expanded
distribution in a number of channels, including freestanding
stores.
- Sales in the category also reflect
strong double-digit growth from Smashbox and the Tom Ford line of
cosmetics.
- The increase in makeup operating income
primarily reflected improved results from makeup artist brands,
partially offset by lower results from our heritage brands.
Fragrance
- In fragrance, sales decreased,
primarily reflecting lower sales of certain Estée Lauder
fragrances, as well as certain designer fragrances.
- Partially offsetting these lower sales
were the recent launches of Jo Malone Wood Sage & Sea Salt,
DKNY MYNY and Tom Ford Velvet Orchid.
- Fragrance operating income decreased,
reflecting the lower sales, partially offset by higher results from
the Company’s luxury fragrance brands, as a result of new product
launches and expanded distribution.
Hair Care
- The hair care category’s growth
benefited from expanded global distribution, primarily in salons,
department stores and travel retail for Aveda and from
specialty-multi brand retailers for Bumble and bumble.
- Hair care net sales growth also
reflects the recent launches of Smooth Infusion Naturally Straight
by Aveda and the expansion of Bumble and bumble’s Hairdresser’s
Invisible Oil line of products.
- Hair care operating income increased
more than 100%, primarily reflecting higher net sales driven by
expanded global distribution and new product launches, as well as
strategically lower investment spending.
Results by
Geographic Region
Three Months Ended December 31
(Unaudited;
Dollars in millions)
Net Sales Percent Change
OperatingIncome (Loss)
PercentChange
2014 2013
ReportedBasis
ConstantCurrency
2014 2013
ReportedBasis
The Americas $ 1,201.4 $ 1,194.6 1 % 4 % $ 120.8 $ 152.2 (21
)% Europe, the Middle East & Africa. 1,211.5 1,181.0 3 9 355.2
332.4 7 Asia/Pacific 631.6 643.0 (2 ) 2 156.8 168.2 (7 ) Subtotal
3,044.5 3,018.6 1 5 632.8 652.8 (3 )
Adjustments associated withrestructuring
activities
— 0.1 — 3.5 Total $ 3,044.5 $ 3,018.7 1 % 5 % $ 632.8 $ 656.3 (4 )%
In addition to net sales, the change in operating income in each
of the Company’s geographic regions was unfavorably impacted by the
strength of the U.S. dollar in relation to certain currencies.
Total operating income in constant currency increased 2%.
The Americas
- Sales in the United States increased,
primarily due to higher sales from the Company’s makeup and luxury
brands, driven by new product introductions, successful holiday
sets and expanded distribution. Sales in the Company’s online
business grew strong double digits.
- Sales in the Company’s heritage brands
decreased, due, in part, to a difficult comparison with the
prior-year period, which featured significant launches of
reformulated iconic products.
- In constant currency, sales grew in
Canada and Latin America, while reported sales decreased, due to
the impact of foreign currency translation.
- Operating income in the Americas
decreased, primarily reflecting increased costs behind
capability-building initiatives, such as research and development
and information technology, and, to a lesser extent, acquisitions
and the lower sales in heritage brands, as well as lower results in
Latin America, primarily Venezuela. This decrease was partially
offset by higher results from makeup artist, hair care and luxury
brands.
Europe, the Middle East &
Africa
- In constant currency, net sales
increased in most product categories and in virtually all countries
in the region. The Company estimates that it continued to
outperform prestige beauty in many markets.
- The net sales increase was led by
double-digit constant currency growth in the United Kingdom, Nordic
and a number of emerging markets, including Russia, the Middle
East, Turkey, South Africa and Central Europe. Double-digit growth
was also posted in Switzerland and India, while strong sales gains
were generated in France and Benelux.
- Retail sales grew mid-single digits in
travel retail, while net sales decreased, reflecting a rebalancing
of inventory levels at certain retailers, the timing of shipments
attributable to a later Chinese New Year and softness of some key
foreign currencies affecting travel and consumptions. The Company
expects a more normalized sales growth pattern in the second half
of the fiscal year. The Company’s travel retail business continues
to benefit from new launch initiatives, an increase in global
airline passenger traffic and expanded distribution.
- Operating income increased, primarily
due to higher results in the United Kingdom, the Middle East and
Nordic, which were partially offset by lower results in travel
retail, as well as in Russia, reflecting the impact of foreign
currency translation.
Asia/Pacific
- Sales in the region increased in
constant currency with double-digit growth in Australia and solid
sales gains in China, Japan and Thailand.
- The higher sales in China were
primarily from increased sales from certain heritage brands despite
being up against a difficult comparison with the prior-year period
that featured significant launch activity.
- These increases were partially offset
by lower sales in Singapore, Taiwan and Hong Kong. In Hong Kong,
political instability has negatively impacted business and the
Company remains cautious of the slower growth there.
- In Asia/Pacific, operating income
decreased, due to lower results in Taiwan, Korea, China and Hong
Kong. The lower results in China reflect increased advertising
spending to support sales growth. Higher operating results were
posted primarily in Thailand and Australia.
Six-Month Results
- For the six months ended December 31, 2014, the Company
reported net sales of $5.68 billion compared to $5.69 billion in
the comparable prior-year period. Excluding the impact of foreign
currency translation, net sales increased 2%.
- The Company reported net earnings of $663.8 million for the six
months ended December 31, 2014, compared with $733.2 million in the
same period last year. Diluted net earnings per common share for
the six months ended December 31, 2014 was $1.71 compared with
$1.86 reported in the prior-year period.
- The fiscal 2015 six-month results comparison was unfavorably
impacted by the acceleration of sales orders from certain retailers
in connection with the Company’s rollout of its last major wave of
SMI in July 2014 in certain of its locations.
- Excluding the impact of the shift and
restructuring adjustments, net sales and earnings per share in
constant currency for the six months ended December 31, 2014 would
have increased 5% and 7%, respectively. Net sales in constant
currency grew in each of the Company’s geographic regions and
product categories.
- Information about GAAP and non-GAAP
financial measures, including reconciliation information, is
included in this release.
Cash Flows
- For the six months ended December 31,
2014, net cash flows provided by operating activities increased 27%
to $993.7 million, compared with $782.4 million in the prior
year.
- The improvement primarily reflected an
increase in cash from certain working capital components, partially
offset by lower net earnings.
Outlook for Fiscal 2015 Third Quarter
and Full Year
The Company continues to estimate global prestige beauty will
grow approximately 3% to 4%. The Company expects to grow ahead of
the industry by focusing on the fastest growing product categories,
channels and countries. The Company also expects to leverage its
strong sales growth and increase its operating margin and cash flow
from operations.
While the Company’s business is performing well overall, it
continues to see economic challenges in certain countries around
the world. The Company is cautious of the slower growth in Hong
Kong and China, a decline in spending by Chinese, Russian and
Brazilian travelers and unfavorable foreign exchange due to the
strength of the U.S. dollar in relation to certain currencies.
Some retailers accelerated their sales orders in connection with
the Company’s rollout of its last major wave of SMI in July 2014 in
certain of its locations. While those additional orders benefited
fiscal 2014 results, the Company’s full year fiscal 2015 results
will reflect a corresponding adverse effect. The Company’s fiscal
2015 full year outlook includes the impact of this shift.
Third Quarter Fiscal
2015
- Net sales are forecasted to increase
between 6% and 7% in constant currency.
- Reflecting the strength of the U.S.
dollar, foreign currency translation is expected to negatively
impact sales by approximately 6% to 7% versus the prior-year
period.
- The Company’s recent acquisitions are
forecast to contribute approximately 50 to 70 basis points to the
Company’s overall sales growth. Acquisitions are estimated to
negatively impact earnings per share by approximately $.02.
- Diluted net earnings per share are
projected to be between $.45 and $.50.
- The approximate 6% to 7% negative
currency impact on the sales growth equates to about $.07 of
earnings per share.
- During the quarter, the Company plans
to increase marketing spending behind more targeted advertising,
merchandising and sampling to support product launches and
accelerate momentum.
Full Year Fiscal
2015
- Net sales are forecasted to grow
between 2% and 3% in constant currency.
- Reflecting the strength of the U.S.
dollar, foreign currency translation is now expected to negatively
impact sales by approximately 4% versus the prior-year period.
- The impact of the accelerated retailer
orders is expected to reduce the fiscal 2015 full year sales by
approximately 3%.
- Net sales excluding the effect of the
accelerated retailer orders are forecasted to grow between 5% and
6% in constant currency.
- The Company’s recent acquisitions are
forecast to contribute approximately 40 basis points to the
Company’s overall sales growth. Acquisitions are estimated to
negatively impact earnings per share by approximately $.06.
- Diluted net earnings per share,
including the effect of the accelerated retailer orders, the
negative impact of foreign currency translation and acquisitions,
are projected to be between $2.72 to $2.80.
- Diluted net earnings per share,
excluding the effect of the accelerated retailer orders, are
projected to be between $2.93 to $3.01. This also reflects the
negative impact of foreign currency translation and
acquisitions.
- The approximate 4% negative currency
impact on the sales growth equates to about $.23 of earnings per
share. On a constant currency basis and before the effect of the
accelerated retailer orders, earnings per share is expected to grow
between 7% to 10%.
Reconciliation between GAAPand
non-GAAP estimates
Year Ending June 30, 2015 Net Sales
Growth (Unaudited)
ReportedBasis
ConstantCurrency
Diluted EarningsPer
Share
Forecast including the impact of the
fiscal2015 accelerated retailer orders
(2 )% – (1)%
(1)
2 % – 3% $ 2.72 – $2.80
(1)
Non-GAAP Impact of fiscal 2015 accelerated orders ~3%
~3% .21
Forecast excluding the accelerated
retailerorders
1 % – 2% 5 % – 6% $ 2.93 – $3.01
(1) Represents GAAP estimates
Conference Call
The Estée Lauder Companies will host a conference call at 9:30
a.m. (ET) today, February 5, 2015 to discuss its results. The
dial-in number for the call is 888-294-4716 in the U.S. or
706-902-0101 internationally (conference ID number: 67722547). The
call will also be webcast live at
http://investors.elcompanies.com.
Forward-Looking
Statements
The forward-looking statements in this press release, including
those containing words like “expect,” “plans,” “may,” “could,”
“anticipate,” “estimate,” “projected,” “forecasted,” those in Mr.
Freda’s remarks and those in the “Outlook for Fiscal 2015 Third
Quarter and Full Year” section involve risks and uncertainties.
Factors that could cause actual results to differ materially from
those forward-looking statements include the following:
(1) increased competitive activity from companies in the
skin care, makeup, fragrance and hair care businesses, some of
which have greater resources than the Company does; (2) the
Company’s ability to develop, produce and market new products on
which future operating results may depend and to successfully
address challenges in the Company’s business; (3) consolidations,
restructurings, bankruptcies and reorganizations in the retail
industry causing a decrease in the number of stores that sell the
Company’s products, an increase in the ownership concentration
within the retail industry, ownership of retailers by the Company’s
competitors or ownership of competitors by the Company’s customers
that are retailers and our inability to collect receivables; (4)
destocking and tighter working capital management by retailers; (5)
the success, or changes in timing or scope, of new product launches
and the success, or changes in the timing or the scope, of
advertising, sampling and merchandising programs; (6) shifts in the
preferences of consumers as to where and how they shop for the
types of products and services the Company sells; (7) social,
political and economic risks to the Company’s foreign or domestic
manufacturing, distribution and retail operations, including
changes in foreign investment and trade policies and regulations of
the host countries and of the United States; (8) changes in the
laws, regulations and policies (including the interpretations and
enforcement thereof) that affect, or will affect, the Company’s
business, including those relating to its products or distribution
networks, changes in accounting standards, tax laws and
regulations, environmental or climate change laws, regulations or
accords, trade rules and customs regulations, and the outcome and
expense of legal or regulatory proceedings, and any action the
Company may take as a result; (9) foreign currency fluctuations
affecting the Company’s results of operations and the value of its
foreign assets, the relative prices at which the Company and its
foreign competitors sell products in the same markets and the
Company’s operating and manufacturing costs outside of the United
States; (10) changes in global or local conditions, including those
due to the volatility in the global credit and equity markets,
natural or man-made disasters, real or perceived epidemics, or
energy costs, that could affect consumer purchasing, the
willingness or ability of consumers to travel and/or purchase the
Company’s products while traveling, the financial strength of the
Company’s customers, suppliers or other contract counterparties,
the Company’s operations, the cost and availability of capital
which the Company may need for new equipment, facilities or
acquisitions, the returns that the Company is able to generate on
its pension assets and the resulting impact on its funding
obligations, the cost and availability of raw materials and the
assumptions underlying the Company’s critical accounting estimates;
(11) shipment delays, commodity pricing, depletion of inventory and
increased production costs resulting from disruptions of operations
at any of the facilities that manufacture nearly all of the
Company’s supply of a particular type of product (i.e., focus
factories) or at the Company’s distribution or inventory centers,
including disruptions that may be caused by the implementation of
SAP as part of the Company’s Strategic Modernization Initiative,
other information technology initiatives or by restructurings; (12)
real estate rates and availability, which may affect the Company’s
ability to increase or maintain the number of retail locations at
which the Company sells its products and the costs associated with
the Company’s other facilities; (13) changes in product mix to
products which are less profitable; (14) the Company’s ability to
acquire, develop or implement new information and distribution
technologies and initiatives on a timely basis and within the
Company’s cost estimates and the Company’s ability to maintain
continuous operations of such systems and the security of data and
other information that may be stored in such systems or other
systems or media; (15) the Company’s ability to capitalize on
opportunities for improved efficiency, such as publicly-announced
strategies and restructuring and cost-savings initiatives, and to
integrate acquired businesses and realize value therefrom; (16)
consequences attributable to local or international conflicts
around the world, as well as from any terrorist action, retaliation
and the threat of further action or retaliation; (17) the timing
and impact of acquisitions, investments and divestitures; and (18)
additional factors as described in the Company’s filings with the
Securities and Exchange Commission, including its Annual Report on
Form 10-K for the fiscal year ended June 30, 2014. The
Company assumes no responsibility to update forward-looking
statements made herein or otherwise.
The Estée Lauder Companies Inc. is one of the world’s leading
manufacturers and marketers of quality skin care, makeup, fragrance
and hair care products. The Company’s products are sold in over 150
countries and territories under the following brand names: Estée
Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins,
M•A•C, Bobbi Brown, Tommy Hilfiger, Kiton, La Mer, Donna Karan,
Aveda, Jo Malone London, Bumble and bumble, Darphin, Michael Kors,
Flirt!, GoodSkin Labs, Tom Ford, Coach, Ojon, Smashbox, Ermenegildo
Zegna, Aerin Beauty, Osiao, Marni, Tory Burch, RODIN olio lusso, Le
Labo, Editions de Parfums Frédéric Malle and GLAMGLOW.
An electronic version of this release can be
found at the Company’s website, www.elcompanies.com.
THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF
EARNINGS
(Unaudited; In millions, except per
share data and percentages)
Three Months EndedDecember
31
PercentChange
Six Months EndedDecember
31
PercentChange
2014 2013
2014 2013
Net Sales $ 3,044.5 $ 3,018.7 1 % $ 5,675.5 $ 5,693.7 0 %
Cost of Sales 573.1 581.6 1,109.7
1,125.7
Gross Profit 2,471.4 2,437.1 1 %
4,565.8 4,568.0 0 %
Gross Margin 81.2 %
80.7 % 80.4 % 80.2 % Operating expenses: Selling, general
and administrative 1,838.6 1,784.2 3,585.0 3,464.4 Restructuring
and other charges — (3.4 ) — (2.2 )
1,838.6 1,780.8 3 % 3,585.0 3,462.2 4 %
Operating Expense Margin 60.4 % 59.0 % 63.1 % 60.8 %
Operating Income 632.8 656.3 (4 )% 980.8 1,105.8 (11
)%
Operating Income Margin 20.8 % 21.7 % 17.3 % 19.4
% Interest expense 15.0 14.6 29.8 29.2 Interest income and
investment income, net 3.8 2.2 5.4 3.3
Earnings before Income Taxes 621.6 643.9 (3 )% 956.4 1,079.9
(11 )% Provision for income taxes 183.9 208.7
289.5 342.9
Net Earnings 437.7 435.2 1 % 666.9
737.0 (10 )% Net earnings attributable to noncontrolling
interests (2.0 ) (2.7 ) (3.1 ) (3.8 )
Net Earnings Attributable to The Estée
LauderCompanies Inc.
$ 435.7 $ 432.5
1
% $ 663.8 $ 733.2 (9 )%
Net earnings attributable to The
EstéeLauder Companies Inc. per common share:
Basic $ 1.15 $ 1.11 3 % $ 1.74 $ 1.89 (8) % Diluted 1.13 1.09 3 %
1.71 1.86 (8) % Weighted average common shares outstanding:
Basic 380.0 388.3 380.9 388.1 Diluted 386.1 395.4 387.1 395.1
In the fiscal 2014 fourth quarter some retailers accelerated
sales orders in advance of the Company’s July 2014 implementation
of its Strategic Modernization Initiative (SMI) in certain of its
largest remaining locations of approximately $178 million. These
orders would have occurred in the Company’s fiscal 2015 first
quarter ended September 30, 2014. This amounted to approximately
$127 million in operating income, equal to approximately $.21 per
diluted common share. The impact of this shift is reflected in the
consolidated statements of earnings for the six months ended
December 31, 2014.
THE ESTÉE LAUDER COMPANIES INC.
SUMMARY OF CONSOLIDATED RESULTS
(Unaudited; Dollars in
millions)
Six Months Ended December 31
Net Sales
Percent Change
OperatingIncome (Loss)
PercentChange
2014
2013
ReportedBasis
LocalCurrency
2014
2013
ReportedBasis
Results by
Geographic Region
The Americas $ 2,316.2 $ 2,397.0 (3 )% (1 )% $ 178.2 $ 308.2 (42 )%
Europe, the Middle East & Africa. 2,153.7 2,072.2 4 7 525.1
513.2 2 Asia/Pacific 1,205.6 1,224.4 (2 ) 1 277.5 282.1 (2 )
Subtotal 5,675.5 5,693.6 0 2 980.8 1,103.5 (11 ) Adjustments
associated with restructuring activities — 0.1 — 2.3 Total $
5,675.5 $ 5,693.7 0 % 2 % $ 980.8 $ 1,105.8 (11 )%
Results by
Product Category
Skin Care
$
2,365.8
$
2,432.3
(3
)%
0
%
$
493.5
$
579.6
(15
)%
Makeup
2,197.5
2,130.1
3
6
379.3
414.6
(9
)
Fragrance
817.1
845.2
(3
)
(1
)
86.5
97.4
(11
)
Hair Care
265.2
259.9
2
5
25.0
16.1
55
Other
29.9
26.1
15
18
(3.5)
(4.2)
17
Subtotal
5,675.5
5,693.6
0
2
980.8
1,103.5
(11)
Adjustments associated withrestructuring
activities
—
0.1
—
2.3
Total
$
5,675.5
$
5,693.7
0
%
2
%
$
980.8
$
1,105.8
(11
)%
The change in net sales and operating income for the six months
ended December 31, 2014 in the Company’s geographic regions and
product categories was unfavorably impacted by the shift in orders
from certain retailers due to the Company’s implementation of SMI,
as previously mentioned. See tables on page 11 that exclude the
impact of the shift in orders on the Company’s net sales and
operating income by geographic regions and product categories for
the six months ended December 31, 2014.
THE ESTÉE LAUDER COMPANIES INC.
This earnings release includes some non-GAAP financial measures
relating to adjustments associated with restructuring activities
and the accelerated orders associated with the Company’s Strategic
Modernization Initiative (SMI) rollout. The following is a
reconciliation between the non-GAAP financial measures and the most
directly comparable GAAP measures for certain consolidated
statements of earnings accounts before and after these items. The
Company uses these non-GAAP financial measures, among other
financial measures, to evaluate its operating performance, and the
measures represent the manner in which the Company conducts and
views its business. Management believes that excluding these items
that are not comparable from period to period helps investors and
others compare operating performance between two periods. While the
Company considers the non-GAAP measures useful in analyzing its
results, they are not intended to replace, or act as a substitute
for, any presentation included in the consolidated financial
statements prepared in conformity with GAAP.
The Company operates on a global basis, with the majority of its
net sales generated outside the United States. Accordingly,
fluctuations in foreign currency exchange rates can affect the
Company’s results of operations. Therefore, the Company presents
certain net sales, operating results and diluted earnings per share
information excluding the effect of foreign currency rate
fluctuations to provide a framework for assessing the performance
of its underlying business outside the United States. Constant
currency information compares results between periods as if
exchange rates had remained constant period-over-period. The
Company calculates constant currency information by translating
current-period results using prior-year period weighted average
foreign currency exchange rates.
As part of SMI, the Company implemented the last major wave of
SAP-based technologies in July 2014. As a result, and consistent
with prior waves, the Company experienced a shift in its sales and
operating results from accelerated orders from certain of its
retailers to provide adequate safety stock and to mitigate any
potential short-term business interruption associated with the July
2014 SMI rollout. In particular, approximately $178 million of
accelerated orders were recorded as net sales in the fiscal 2014
fourth quarter that would have occurred in the fiscal 2015 first
quarter.
This action created an unfavorable comparison between the fiscal
2015 and fiscal 2014 six months of approximately $178 million in
net sales and approximately $127 million in operating income, equal
to $.21 per diluted common share and impacted the Company’s
operating margin comparisons. The Company believes the presentation
of certain comparative information in the discussions in this
release that exclude the impact of the timing of these orders is
useful in analyzing the net sales performance and operating results
of its business.
THE ESTÉE LAUDER COMPANIES INC.
Reconciliation of Certain Consolidated
Statements of Earnings Accounts Before and AfterReturns and
Charges and Accelerated Orders Associated with the Company’s
Implementation of SAP
(Unaudited; In millions, except per
share data and percentages)
Six Months Ended December 31, 2014
Six Months Ended December 31,
2013
AsReported
Returns/Charges
SAPAdjust-ments
BeforeCharges/SAP
AsReported
Returns/Charges
SAPAdjust-ments
BeforeCharges/SAP
% Changeversus Prior
YearBefore
Charges/SAP
Net Sales $5,675.5 $ — $ 178.3 $5,853.8
$5,693.7 $ (0.1 ) $ — $5,693.6 3% Cost of sales 1,109.7 —
35.1 1,144.8 1,125.7 0.0 — 1,125.7 Gross Profit 4,565.8 —
143.2 4,709.0 4,568.0 (0.1 ) — 4,567.9 3% Gross Margin 80.4 % 80.4
% 80.2 % 80.2 % Operating expenses 3,585.0 — 16.0 3,601.0
3,462.2 2.2 — 3,464.4 4% Operating Expense Margin 63.1 % 61.5 %
60.8 % 60.8 % Operating Income 980.8 — 127.2 1,108.0 1,105.8
(2.3 ) — 1,103.5 0% Operating Income Margin 17.3 % 18.9 % 19.4 %
19.4 % Provision for income taxes 289.5 — 45.3 334.8
342.9 (0.9 ) — 342.0
Net Earnings Attributable toThe Estée
LauderCompanies Inc.
663.8 — 81.9 745.7 733.2 (1.4 ) — 731.8 2%
Diluted net earningsattributable to The
EstéeLauder Companies Inc. percommon share
1.71 — .21 1.93 1.86 (.00 ) — 1.85 4%
The impact on net sales and operating results of the accelerated
orders from certain retailers associated with the Company’s
implementation of SMI by product category and geographic region is
shown below. Additionally, excluding the impact of the shift in
orders and the adjustments associated with restructuring
activities, net sales and operating results for the six months
ended December 31, 2014 would have increased/(decreased) as
follows:
Six Months Ended December 31, 2014 (Unaudited;
Dollars in millions)
Accelerated Sales Orders
Net Sales As Adjusted
OperatingResults
AsAdjusted
Net Sales
OperatingResults
ReportedBasis
ConstantCurrency
Product
Category:
Skin Care $ 91 $ 72 1 % 3 % (2 )% Makeup 65 41 6 9 2 Fragrance 21
14 (1 ) 2 3 Hair Care 1 — 2 5 56 Other — — 15
18 17 Total $ 178 $ 127 3 % 5 % 0 %
Geographic
Region:
The Americas $ 84 $ 53 0 % 2 % (25 )% Europe, the Middle East &
Africa 68 53 7 10 13 Asia/Pacific 26 21 1 3
6 Total $ 178 $ 127 3 % 5 % 0 %
Total operating income in constant currency for the six months
ended December 31, 2014, excluding the impact of the shift in
orders and the adjustments associated with restructuring
activities, increased 4%.
THE ESTÉE LAUDER COMPANIES INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited; In millions)
December 312014
June 302014
December 312013
ASSETS Current Assets Cash and
cash equivalents $ 1,241.2 $ 1,629.1 $ 1,748.0 Short-term
investments 130.8 — — Accounts receivable, net 1,399.0 1,379.3
1,501.0 Inventory and promotional merchandise, net 1,112.3 1,294.0
1,145.9 Prepaid expenses and other current assets 542.7 522.8 530.7
Total Current Assets 4,426.0 4,825.2 4,925.6
Property, Plant and Equipment, net 1,434.2 1,502.6 1,395.4
Other Assets 1,996.4 1,541.0 1,520.2
Total Assets $
7,856.6 $ 7,868.8 $ 7,841.2
LIABILITIES AND EQUITY
Current Liabilities Current debt $ 68.5 $ 18.4 $ 15.9
Accounts payable 495.0 524.5 493.3 Other current liabilities
1,480.7 1,513.8 1,529.9
Total Current Liabilities 2,044.2
2,056.7 2,039.1
Noncurrent Liabilities Long-term debt
1,320.7 1,324.7 1,322.9 Other noncurrent liabilities 662.4 618.0
596.1
Total Noncurrent Liabilities 1,983.1 1,942.7 1,919.0
Total Equity 3,829.3 3,869.4 3,883.1
Total
Liabilities and Equity $ 7,856.6 $ 7,868.8 $ 7,841.2
SELECT CASH FLOW DATA
(Unaudited; In millions)
Six Months EndedDecember 31 2014
2013 Cash Flows from Operating Activities Net
earnings $ 666.9 $ 737.0 Depreciation and amortization 198.6 184.4
Deferred income taxes (32.8 ) (18.3 ) Other items 112.3 97.5
Changes in operating assets and liabilities: Increase in accounts
receivable, net (109.8 ) (318.4 ) Decrease (increase) in inventory
and promotional merchandise, net 107.1 (12.9 )
Decrease (increase) in other assets,
net
2.9 (44.8 ) Increase in accounts payable and other liabilities
48.5 157.9
Net cash flows provided by operating
activities $ 993.7 $ 782.4 Capital expenditures $ 187.4
$ 216.9 Payments to acquire treasury stock 478.6 204.9 Dividends
paid 168.9 148.4 Acquisition of businesses and other intangible
assets 104.2 9.2 Purchases of investments, net 499.3 0.6
The Estée Lauder Companies Inc.Investor
Relations:Dennis D’Andrea, 212-572-4384orMedia
Relations:Alexandra Trower, 212-572-4430
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